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Rice, Rice Everywhere…and Not a Grain to Sell

It was a foolproof plan. What could possibly go wrong?

Instead of paying money directly to rice farmers to subsidize rice production, Thailand’s new government stumbled upon a “get rich quick” scheme it must have thought had never been thought of before. It decided to buy every grain of rice from its farmers for outrageously inflated prices – as much as 50 percent over the world market price – and then hoard it.

As the world’s top rice exporter, the plan was simple: Buy up the rice, sit on the rice, create a worldwide rice shortage, artificially inflate the global price of rice…then open the barn doors, sell off the hoarded rice, and the government would make a killing!

Ah, the best laid plans.

Nature, not to mention the market, abhorring a vacuum as it does, other countries rushed in to fill the demand, leaving Thailand with a mountain of stored rice, reportedly some 17 million tons worth, that it can’t sell to other countries for anywhere near the price it paid for it…and with a new crop set to hit the market in October! Cost to Thai taxpayers (so far): $4.4 billion.

So what does Thai rice have to do with tea in China…or more to the point, sugar in the U.S.?

Well, the Thai government’s scheme failed to jack up the price of rice as expected, but that colossal failure now threatens to sink the price of rice well below the current world price. Sure, a windfall for consumers but bad for the stability of international economies. Such wild fluctuations in a commodity price make it pretty hard to lay long-term economic plans.

But consider this for a minute: What if Brazil, which currently controls over 50 percent of the world’s sugar market, decided to “pull a Thailand” with its sugar supply?

Thailand’s fatal flaw was in not controlling enough of the world market that others couldn’t quickly fill the gap. But when you control more than half the market, it’d be a lot harder for other countries to step up should Brazil decide to hoard its sugar supply. Even the world’s second biggest (and heavily subsidized) sugar exporter, Thailand, would be unable to fill the void. In that case, the global price of sugar would skyrocket.

All of these kinds of government interventions – whether it’s subsidizing crop production or buying them up at inflated prices – adversely affects farmers, consumers, food manufactures and nations. It needs to end…and what better place to start than with sugar?

Rep. Ted Yoho has introduced a resolution in Congress calling on the Obama administration to pursue a new “zero for zero” strategy for sugar. The resolution proposes ending the U.S. sugar program if all other sugar producing and exporting countries – including Brazil and Thailand – will simultaneously end their own sugar subsidy programs. Such a policy, negotiated and enforced through the WTO, would allow a true, global free market in sugar to take shape. Just do it.